Car Title Lending Industry In Limbo

February 07, 2007|By CHRIS FLORES, cflores@dailypress.com | 247-4738

The business is growing, but remains in legal shadows after two bills failed to clear a panel.

Feeling guilty that his attempt to regulate the payday loan industry caused it to take off in 2002, Del. Harvey Morgan, R-Middlesex, tried this year to kill off the car title loan industry before it spreads across Virginia.

His effort failed Tuesday, but so did a bill that would have done for the car title industry what Morgan's bill did for payday lending in 2002. Legislation that would have legitimized or ended the industry in Virginia died in a General Assembly committee Tuesday.

The death of the bills, when coupled with the settlement of three lawsuits last year against car title lenders in Virginia, leaves the lenders in a legal limbo. The lawsuits might have created precedent-setting rulings that the business model violates state consumer protection laws.

The car title lending industry, led by Loan Max, has been growing in Hampton Roads and donating generously to the legislature. Like payday loans, the borrowers get a short-term loan at high interest rates, but put their car title at risk instead of a paycheck if they can't repay.

The bill the industry wanted, which was sponsored by Del. Terry Kilgore, R-Scott, would have allowed the industry to charge whatever interest rates it wants. Legislation from Del. Harvey Morgan, R-Middlesex, would have capped interest rates at 36 percent.

Like payday lenders who have faced the same threat, car title lenders say they would be put out of business with a 36 percent cap.

The Virginia State Corporation Commission's financial bureau and the Virginia Attorney General's office are supposed to verify compliance with state consumer finance protections laws. Neither office has investigated if the terms of the car title loans conform to the law. *